The following article is from Wave New Consumption, written by Cao Rui.

With the ongoing fluctuations in the pandemic, the decline of major capital and traffic dividends, and the continuous clarification of platform rules, the current focus of the industry is on where the opportunities and ways forward lie for new brands.

Recently, Wave New Consumption, in collaboration with frontline organizations and outstanding brands, held the "2022 New Brand Breakthrough Summit" online. In this springtime debate, 12 entrepreneurs, including Song Xiangqian, founding partner of Harvest  Capital, Huadian Time, Bosie, Genji Wood Language, and Big Eyes Shopping, delved into the complex situation and strategies for the breakthrough of new brands from dimensions such as capital orientation, supply chain innovation, ultimate products, brand philosophy, and channel integration.

The summit has sparked strong industry responses, with over 60,000 participants, thousands of comments, and interactions in more than 8 hours over two days. It marks a significant industry milestone in value creation and direction exploration.

During the summit, Song Xiangqian, founding partner of Harvest Capital, shared profound insights into his latest reflections on the ups and downs of new consumption over the past two years. He also provided a fundamental understanding of the consumer market, brand opportunities, and entrepreneurial qualities for the future.

Today, the multiple pressures and challenges faced by the consumer industry both internally and externally have left many entrepreneurs in confusion. Accustomed to the explosive growth of the past two years, the sudden "slowdown" has caught many off guard. While consensus exists on the need to rectify and adapt, navigating the rhythm of the times and rediscovering the right direction remains chaotic.

"Everyone is willing to spend time on marketing, traffic, ROI, but when it comes to strategic capabilities, product strength, brand power, supply chain capabilities, and other underlying aspects, patience seems to be lacking. This indicates that many entrepreneurs sing to the tune of whichever mountain they are on, rather than starting with the end in mind to build a company. However, everything follows natural laws; there has never been a Monkey King jumping out of a stone crack."

In the past two years, many entrepreneurs have entered the market by focusing on small features and minor pain points, operating based on the logic of traffic. At first glance, it seems good, but according to Song Xiangqian, this is an illusion brought about by the uniqueness of the Chinese market. Many seemingly glamorous new brands cannot withstand the test of time in terms of actual cash flow and survival capabilities.

Many principles are common sense, but common sense is often the easiest to overlook. Respecting the market requires patience, and a good company is unlikely to grow quickly.

Established fifteen years ago, Harvest Capital adheres to a value investment philosophy, rooted in consumer investment in China with a cumulative fund management scale exceeding 25 billion yuan.

Song Xiangqian's investment achievements in the consumer field are unique, with representative cases including Jimailang, Wenheyo, Laiyifen, Aimer Group, Dongpeng Beverage, Xiaoguan Tea, Babie Food, Laoxiang Chicken, Qiaqia Food, Jiashiding Soy Sauce, Juran Home, Meituan-Dianping, Didi Chuxing, and more.

Here are some excerpts of insightful content to share with entrepreneurs!

Sharing | Song Xiangqian

Editor | Cao Rui

01 The Essence of Ebbing: Lack of Due Respect for the Macro Environment
Just now, Xiaojun mentioned that I am very good at macro analysis. Why is discussing the macro perspective crucial? Because nowadays, many young entrepreneurs, driven by passion, rush into certain tracks, create products, and start entering the market.

However, I believe that strategic planning is more important many times. You must clearly understand the era you are in, the regional environment, economic structure, and the impact of future development trends on the industry you are in.

Warren Buffett once said something about "structural moats." For a consumer company to become a life choice for the public and stand out among all competitors, it must have structural competitive advantages, not just mastering some so-called methodologies at a certain time and place.

There is a significant distinction between doing business and building a business. Why has the new consumption trend surged and receded quickly in the past two years? I often encounter various entrepreneurs asking me why these changes are happening.

Firstly, the consumer industry is undoubtedly a vast and enduring battlefield, with the "seven necessities of life" for the Chinese people: firewood, rice, oil, salt, soy sauce, vinegar, and tea. Almost each of these is a trillion-dollar industry. But if we think carefully, how many big companies are there in these industries, and how many can achieve hundreds of billions in revenue or trillion-dollar market value? Almost none.

Secondly, in these two years, with so much innovation and branding in the consumer industry, capital has also penetrated this industry extensively. Why, then, does the new consumption not perform as expected today? These phenomena are worth reflecting on.

I believe that, first and foremost, most entrepreneurs are indifferent to the macroeconomy, thinking that macroeconomics has nothing to do with them. But I agree with Charlie Munger: macroeconomically, you may indeed be powerless, but microeconomically, you must take action.

For a company to succeed, it must have a clear, stable, and objective judgment of the macroeconomy, the future development of the enterprise, and the importance of the brand to people's lives. Only with this understanding can it master such a vast and enduring battlefield.

I see many entrepreneurs choosing to delve into a small feature or a minor pain point and then using social currency, mobile internet, and the dividend of traffic for entrepreneurship.

At first glance, it seems good, but problems will inevitably arise over time. Why does this happen? Lack of understanding of the macroeconomy, lack of understanding of the industry structure, and a lack of effort to seriously study the Chinese economy.

Today, the entire group of entrepreneurs and business leaders actually lacks the due respect for the macro perspective. If you don't understand the Chinese economy and the future development trends, how can you achieve perfect results with the wrong starting point?

02 Choosing a Small Track Can Still Succeed, It's a Misconception

Sometimes we systematically misjudge by taking personal consumption experiences and some scenes happening around us as the logic for entrepreneurship or investment. Investment and entrepreneurship are the results of scientific practice guided by methodologies, while personal consumption can be highly personalized.

I have been a lecturer at many prestigious universities such as Tsinghua and Peking University, guiding young entrepreneurs. I found this problem to be very serious.

Most entrepreneurs tend to choose a small track, niche products, a small group of people, and then play the logic of traffic. It sounds beautiful because the market does provide such opportunities. Our electronic payment systems, cold chain logistics, shopping malls, etc., the release of infrastructure dividends has made the threshold for entrepreneurship unprecedentedly low.

However, the barriers are unprecedentedly high. Today, going from 0 to 1 is not too difficult, but going from 1 to 10 is very challenging, and going from 10 to 100 is even more difficult. To become a large enterprise or a national brand is essentially one in a million.

I often hear some entrepreneurs share their experiences. It sounds reasonable at first, but upon closer examination, facing challenges over time is quite significant.

Especially with structural upgrades, economic downturns, as discussed in the Economic Work Conference, supply shocks, shrinking demand, weakening expectations, and the added geopolitical conflicts between Russia and Ukraine, none of these are favorable to us.

In this new environment, how can a fragile small or medium-sized company face competition and pressure? First and foremost, it needs to survive; this is a very important capability.

China has a population of 1.4 billion, the world's largest single market, with the best infrastructure dividends, human resources, and a very good entrepreneurial atmosphere. As I just said, going from 0 to 1 today is not difficult. As long as you have dreams, dare to act, and institutions are willing to provide funds, you can make things happen in this environment.

Because of the relatively dispersed per capita income in China, the phenomenon of consumption stratification is quite obvious. Different entrepreneurial choices, product types, pricing can always find relatively effective expressions among the 1.4 billion people. Moreover, through mobile internet, online channels, it can be expanded and amplified.

So, most companies, as seen in media reports and investment enthusiasm, seem good, but their financial statements and operating cash flows are quite miserable. If you also look at their survival capabilities, the chance of becoming a long-term, enduring brand consumer company is very small. So, there is a saying by Jiangnanchun that I personally strongly agree with:

The dividends of population and traffic are gone, but the dividends of people's hearts and brands are just beginning.

In the Fortune Global 500, China has more than 140 companies, ranking first globally, but among the top 100 brands, only one is Huawei, ranked 83rd globally. I think more companies entering the top 100 globally will truly signify China's economic improvement.

So, I hope all entrepreneurs and professionals in the consumer industry should realize that the uniqueness of the Chinese market makes us feel that choosing a small track can still succeed, which is a misconception.

Entrepreneurs must understand a truth: time is the scale for measuring the value of a company. Money is just a by-product, valuation is not equal to market value, and market value is even less equal to value.

New consumption has been very hot in the past two years, but when we look at the so-called new consumption unicorn top 100, 80% might be in name only. This might make many people feel unhappy, but often, frank advice is unpleasant, and reality is cruel.

I personally have confidence in the development of new consumption. The key is to straighten out and start doing the right things.

China's enormous economic scale and volume advantages will not change. With a savings level as high as 18% of residents, including the adjustment of the economic structure gradually shifting from infrastructure and finance to domestic demand, consumption has become the core engine of economic development.

As I mentioned in a previous article, the next 20-30 years will be a super era for the rise of China's consumer service industry and the golden period for the birth of super consumer brands in China.

03 Start with the End in Mind; Good Companies Don't Grow Fast

Luopang once said that every consumer product is worth being reinvented. I'd like to ask, how many people actually know how to do it? It's easy to talk about concepts, but not many can actually execute.

Take the restaurant industry as an example. In reality, there are only two types of companies: traditional restaurants and modern branded restaurants. The key is modernization. Companies we have invested in, like Dongpeng Special Drinks and Laoxiangji, are traditional ethnic enterprises. However, they have invested a lot of effort in the supply chain, digital operations, and brand building. They constantly refresh, iterate, and progress, making them excellent examples.

Why does Haidilao exist? Although it may not be meeting expectations now, it cannot be denied that as the first standardized and modernized Chinese restaurant, it is commendable.

Many companies haven't deeply considered this question: why are there Chinese, Japanese, French, German, and Southeast Asian cuisines among all the world's cuisines, but only American fast-food chains have succeeded? Represented by McDonald's, KFC, and Starbucks, these globally influential companies have crossed racial, cultural, religious, and language differences. Many people know that American fast food is not delicious, and some even consider it junk food. But why can they expand globally? Whether in the United States, Asia, Africa, or the Middle East, it's actually due to the advancement of management science, which is common sense around us but often ignored.

I visit over 100 companies a year and meet many entrepreneurs. Everyone is willing to spend time on marketing, positioning, traffic, and ROI. But when it comes to strategic capabilities, product strength, brand power, channel strength, supply chain capabilities, etc.—things hidden beneath the iceberg—many lack patience.

What does this indicate? Many entrepreneurs sing whatever song is popular at the moment, without starting with the end in mind to build their companies. What kind of company do you actually want to build, what kind of corporate culture do you want to develop, what kind of brand do you want to establish? Are you aiming to build a brand or just to make money?

The truth is very simple, it's common sense, but many companies haven't thought about this question. So, fundamentally, we need to distinguish between business and career. Every entrepreneur should clarify their original intention when starting. Companies should start with the end in mind to design their brands, products, and channels, respecting the market requires patience, and good companies don't grow fast. This is like human growth, from infancy to adolescence, to adulthood, to old age—everything in the world is influenced by natural laws. There has never been a Monkey King popping out of a stone crevice. The core competitiveness and structural moat of a company need time to nurture, and it's very hard and tiring. But now everyone is seeking speed, trying to prove how capable they are, and they are very anxious to capitalize, without realizing that the value of a company needs to be long-term.

In fact, you can't outsmart the rules of the capital game because those who play with capital understand it better than you. If you desperately raise rounds A, B, C, D, E, F, and in the end, if you can't create a beautiful business model and earn the expected profit, you won't reach your desired endpoint. So, I think there aren't actually that many entrepreneurs; many are still businessmen, traders. Of course, being an entrepreneur or a businessman is a good choice, but we need to put ourselves in the right position. Many people mistake their business for a career and misread themselves as entrepreneurs, turning into "small-minded strategists." The pressure becomes very high.

Entrepreneurs are actually a very difficult-to-cultivate minority group. Lifelong learning, maintaining a very high level of patience and self-discipline, possessing these basic qualities, and being willing to endure hardship can eventually lead to success. Such a group plays the role of ballast and leader in social life and economic development.

As a professional consumer investment institution, Jiawei Capital is also very willing to help everyone enter the hustle and bustle of life. Have confidence in consumption, as brands need time to nourish. Like our investment in Jinmailang, it's no longer just instant noodles but Japanese ramen. After 20 years of continuous innovation and progress, it's truly remarkable. Including the product "Liangbaikai," we have been drinking it since we were young. In the context where the raw water market has been occupied by Yibao, Baisuishan, and Nongfu Spring, Jinmailang has created the concept of boiled water, with very high recognition, becoming the spokesperson for the category. As for Dongpeng Special Drinks and Laoxiangji mentioned earlier, they come from the ordinary life of the people, and they also represent the ordinary life of the Chinese people, entering the hustle and bustle of life.

Finally, I am very grateful to Xiaojun. I think China does need a platform like Wave New Consumption, obsessed with consumption and providing professional perspectives for consumer entrepreneurs.

Actually, every step you take counts, every effort is visible in the market, and a good product speaks for itself. So, we are also willing to support high-quality Chinese entrepreneurs and work together to create a wave of the era for Chinese national brands.